Some of the country’s largest traditional banks are reporting profits this week, prompting CNBC’s Jim Cramer on Wednesday to review the investment case for the tech-oriented companies trying to disrupt old players in the financial sector.
The Mad Money presenter named the following six companies “nouveau banks”: PayPal, Square, Upstart, Affirm, Robinhood Markets and SoFi Technologies.
“It is a good time to get exposure to new banks,” said Cramer, as expectations of Wall Street banks are high during the earnings season. That means their stocks could be affected if results don’t beat expectations, he said, as did JPMorgan Chase on Wednesday.
“If the rest are like JPMorgan … then chances are we will have yet another exodus from pure finance and another love affair with the fintechs,” said Cramer.
This is how Cramer would play the landscape:
Buy It Now
The PayPal app that appears on an iPhone.
Katja Knupper | DeFodi Pictures | Getty Images
Cramer said PayPal and SoFi are worth buying here.
PayPal has done a great job adding new offerings to its products such as adding a buy now, pay later platform, Cramer said, as well as offering cryptocurrency trading and high yield savings accounts through a Synchrony Bank partnership.
“While the stock remains expensive here, I think it’s worth buying now that it’s down 17% from its highs, which is why we added a few for the charitable trust last week.”
SoFi, led by CEO Anthony Noto, also offers a range of services that now include sales of insurance policies, broker accounts and mobile cash management, Cramer said. “SoFi is also well on the way to receiving a banking charter,” he added.
However, SoFi stock has struggled to gain momentum since the company completed a reverse merger in June to begin trading on Nasdaq. While SoFi benefited from Morgan Stanley analysts rating its stock as a buy, “it is still nearly $ 10 lower than its highs earlier this year,” Cramer said.
The other guys
Vlad Tenev, CEO and Co-Founder of Robinhood Markets, Inc., appears on a screen during his company’s initial public offering on the Nasdaq Market location in Times Square in New York City, United States, on July 29, 2021.
Brendan McDermid | Reuters
Cramer said he found Square “tempting” now that the company – which offers peer-to-peer payments, small business loans, and stock and crypto trading – has fallen about 16% from its August high.
However, he said, “I like PayPal more than Square because it’s cheaper.”
Upstart, a lender that is using artificial intelligence to make the process easier, should be on investors’ shopping lists, Cramer said. But with the stock up 746% year-to-date, “wait for a pullback and then pull the trigger,” he said.
Similarly, Cramer said he believes investors should wait for a slight decline in shares in Affirm, a leader in the increasingly popular “buy now, pay later” space that has made high profile deals with Amazon, Walmart and Target.
Robinhood, a pioneer in commission-free trading, has great ambitions to become a “single money app” for consumers, said Cramer. However, Cramer said it will take time to get there and the leading U.S. securities regulator is reviewing its core business model of paying for order flow.
“While Robinhood isn’t my favorite, it’s far too important to ignore,” said Cramer.
Disclosure: Cramer’s nonprofit trust owns stocks in Amazon, Morgan Stanley, and PayPal.
Register here for the new CNBC Investing Club newsletter that tracks Jim Cramer’s every move in the market and gets it delivered straight to your inbox.